Farm loan waiver discomfort - Calcutta Telegraph

Rajan: Raising questions

Udaipur, Dec. 27 (PTI): RBI governor Raghuram Rajan today questioned the effectiveness of farm debt waiver programmes, saying such schemes have constrained the flow of credit to farmers.

“In some states, on certain occasions, we have had debt waivers. How effective have been these debt waivers? In fact, the studies that we have show that they have been ineffective. They have constrained the credit flow post waiver to the farmers,” he said at an annual conference of the Indian Economic Association here today.

On farmers’ suicide, he said there was a need to study this sensitive issue.

“One question is how else we should deal with indebtedness in the farm sector. Also worth examining is the very important issue of farmer suicide — how much they are caused by indebtedness, especially to the formal (banking) system, and how much formal system alleviates indebtedness,” the governor said.

The Andhra Pradesh and Telangana governments have declared loan waivers for the farmers hit by the cyclone Phailin last year.

While the Telangana government has given the mandated 25 per cent of the written-off loan amount to the banks, Andhra Pradesh is yet to do it. Banks have over Rs 1.3-lakh-crore exposure to the farm sector in these two states.

In 2008, the then UPA government at the Centre had come out with the Agricultural Debt Waiver and Debt Relief Scheme, 2008, under which 3.69 crore small and marginal farmers and 60 lakh other farmers were given debt relief worth Rs 52,516 crore.

Government auditor CAG had found that in several cases that ineligible farmers were given the benefit while the deserving were left out, pointing to large-scale possibility of fraud.

On subsidies to the farm sector, Rajan said it would be useful to see whether these subsidies had actually helped agriculture or not.

Inflation goal

Rajan today said the central bank would like to focus on medium-term inflation targeting and would not chase short-term goals.

“The medium term is what gives you time to let the economy adjust to the changes that are happening. This is the sensible inflation targeting that we have to debate about,” he said.

Rajan stressed no country in the world chased short-term inflation target, ignoring domestic and global developments.